Costs management orders

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Whether you have been preparing diligently for months or have just stumbled upon it recently, most of you should now have had the pleasure of acquainting yourself with CPR Practice Direction 51G – the Cost Management Pilot Scheme in the TCC and Mercantile Courts.

The idea is very simple; the implementation and ramifications less so.

The new scheme applies to any case where the first CMC is on or after 1 October 2011. In short, it works like this:

In advance of the CMC, the parties must file, with their Case Management Information sheets, a detailed cost budget substantially in the (4 page) form set out in Precedent "HB".

At the CMC the Court, if it considers it appropriate, or on the application of any party, may make a "Costs Management Order".

If the Court considers it appropriate, it will assess the cost budget and, after “any appropriate revisions”, make a Costs Management Order.

Once a Costs Management Order is made, if the cost position changes, a party must serve a budget revision in advance of the relevant CMC/PTR/hearing, where the Court will approve or disapprove any changes.

At the end of the trial, when assessing costs on a standard basis, the Court will assess those costs at the level of the last approved Cost Management Order unless satisfied there is a good reason not to do so.

So much for the mechanics; how will it work? A few brief thoughts:

Is the CMC too early to estimate costs?

It is clearly envisaged that a Cost Management Order may well be made at the first CMC. That suggests there may be little scope for arguing that it is too early to make any meaningful assessment. In any event, solicitors are already required to provide their own clients with the best information possible about the likely costs of a matter at the outset pursuant to the Code of Conduct. Solicitors will also need to press Counsel for reliable estimates from CMC to end of case costs.

It is suggested that the safest approach would be to specify the assumptions upon which the cost budget has been prepared so as to lay the groundwork for any subsequent application to vary the order if the circumstances change.

How much detail is required?

It is quite possible to fill in the cost budget with minimal detail, but that risks leaving oneself open to an unrealistically frugal Cost Management Order which may well be impossible to dislodge or appeal. On the other hand, a Judge might be slow to conclude that a cost budget is markedly inaccurate in circumstances where each cost is detailed and explained.

Of course, preparation of a detailed budget will take time and money, as will the level of instructions necessary to provide Counsel will adequate detail to defend the budget and attack the other side.

Tactics

The first decision is whether you want to ask for a Cost Management Order. That may depend on your views of the case and your client’s financial position.

We are already all familiar with the situation where the party with the hopeless case on an application submits a Cost Summary which is surprisingly low. Judges have been known to comment that they can tell which party thinks they are going to win just by comparing the Cost Summaries at the start. The pilot scheme is potentially susceptible to a similar approach, but one with far more significant consequences. A party who is lumbered with an unrealistically low Cost Management Order risks having to abandon their claim or, at the least, of handing a significant tactical advantage to the other side.

By contrast, a party with a "healthy" Cost Management Order can wield it with impunity and take the upper hand at any Mediation.

Client relationship

The Cost Management Order only applies to inter partes cost orders. However, it would be naive to think that it will have no impact on client/solicitor costs. At present the solicitor is able to provide general advice about how, even if the case is successful, there will in the end inevitably be some irrecoverable costs. It is rare that such a discussion results in clients demanding an immediate reduction in their fees, and by the time a cost assessment is done a wise lawyer has the cash in hand.

By contrast, where a Cost Management Order is made the solicitor is obliged to report the details back to the client. Imagine how the conversation then proceeds:

“The Court has decided that I should only be charging you £250 per hour and should only spend 20 hours on disclosure, but, if you don’t mind, I’d like to keep charging you at £500 per hour and take 100 hours to do it. Please will you now pay that on account?”

Revisions

Once a Cost Management Order is made, a party must serve a revised budget if the position changes. That raises some interesting conundrums. There are many reasons why cost estimates might radically alter and not all of them are things which one might want to air in front of the other side or the potential trial judge. Other issues might arise out of matters which are protected by client privilege.

Aside from those concerns, how much of a change will be required in order to open up a Cost Management Order and how unforeseeable does that change need to be?

Final thoughts

In reality, this is a project whose impact will depend entirely upon the enthusiasm of the judiciary to embrace it. A pro-active approach would see Cost Management Orders dictating the eventual cost recovery in most cases (and much lengthier CMCs), whereas a more relaxed approach would see little change from the existing case management procedure.

While our experience thus far has been that neither parties nor Judges have thrown themselves into the new scheme with much vigour, this is not a situation which we expect to last very long. The potential cost and tactical advantages/risks will force parties to take the scheme seriously and the Courts will become increasingly comfortable with and confident in exercising their new powers, just as they did when case management and summary assessment were first introduced.

As a matter of principle, as long as it is applied with common sense and an open willingness to review as the case progresses, this new approach should be welcomed. Parties should know as soon as possible what their cost recovery is likely to be and it should facilitate settlements which are better informed and more realistic.

This article is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of Chambers or by Chambers as a whole.